To solve the pain points in accounts payable (AP), hide the fax machine.
Yes, AP processes are inefficient, largely because they are paper-based, mired in faxes and invoices sent through the mail. Checks are cut and sent by mail, too, often left for months in corporate drawers before being deposited at the bank.
However, it need not always be this way — and, sometimes, change can be in the cards. As Matt Clark, president and COO of Corcentric, told Karen Webster, maybe all it takes to embrace automation is for the fax machine to break down.
There’s recognition across the corporate landscape that things need to change, and where there’s recognition of that, a tipping point looms — where companies may finally embrace the benefits of AP automation. As detailed in the Payables Friction Index, a joint effort between PYMNTS and Corcentric, more than 80 percent of the 2,570 firms surveyed said they rely on paper checks to pay invoices, and only about 51 percent of them are satisfied with such methods.
Examining The Ecosystem
It’s important to remember that B2B relationships exist within ecosystems “where you have suppliers that can’t live without buyers, and buyers that cannot live without suppliers. To improve the overall ecosystem,” Clark said, “you have to get some sort of joint motivation to move in the right direction.”
The problem, he continued, is that there is a tremendous amount of historical inertia to overcome, on both the supplier and buyer sides of the payments equation, which can be wrapped up in one phrase: “This is the way we’ve always done it.” To move beyond that mantra, he explained, the pain and friction must be felt acutely by people within the organization who are responsible for driving change, from the top down.
The irony with B2B transactions, Clark continued, is that payment information starts out digital and ends up digital, while paper clogs and snarls the points that lie in between procurement and payment. “That introduces all sorts of opportunities for inefficiencies,” he told Webster, noting that, in this day and age, there are many different options — and plenty of tools and technologies to execute them.
Putting Change In Motion
Within the aforementioned B2B ecosystem, Clark noted (with a nod toward the buyer side of the equation), friction can be felt, as suppliers have a range of capabilities for accepting electronic payments — or, perhaps, they have no range at all, and are sticking to paper-based processes.
“If you’re not a company that has a lot of scale and a lot of ‘stick,’ for lack of a better term, you’re not in a position to mandate to your suppliers to do something differently,” he said. As a result, friction creeps into the payables process, and between buyers and suppliers. Each side has their own desire in terms of how they want to pay and be paid.
Figuring out how to remove the friction from that ecosystem can’t be a single-tracked initiative, he continued. It has to be something that requires diversity of solutions, and an ability to meet B2B partners in a way that creates efficiency for both sides.
“You can’t be going out to suppliers and just saying, ‘Hey, I am rolling out a card program, and you need to start taking a card because I said so,’” Clark told Webster. However, he added, firms would do well to make AP automation part of a bigger, overarching improvement initiative, couching it in terms of “‘look, we’re going to optimize the process for how we’re going to deliver orders, we’re going to allow the invoicing to be streamlined and efficient, we’re going to leverage these improvements to pay you on time and we’re going to give you very tightly integrated remittance information.’”
As a result, collaboration becomes much easier between buyers and suppliers.
The Three Key Factors
Clark said successful change in accounts payable must focus on three key factors: people, process and technology. Sometimes, the people part of the equation gets in the way of technology, as people can have an old-school mindset, he said — but that can change.
As the volume of invoices goes up, Webster noted, so, too, does the index score (in terms of operational efficiencies). This implies that, as businesses scale, executives realize that, in Clark’s words, “the way they’ve always done things is not scaling well. … Companies start to become victims of their own growth.”
Expenses expand in a way that gains executives’ attention, and accounts payable automation moves up the list in terms of imperative strategic initiatives. Clark offered the example of virtual cards, which can create revenue streams (as rebates can be tied to increased usage) while streamlining the payments function.
In general, though, executives would do well to examine the 80/20 rule, where efficiencies can target the 20 percent of suppliers that are tied to 80 percent of accounts payable activity, he noted. Then, as a next phase, executives can dig into that long tail of suppliers that doesn’t generate a ton of volume — and, therefore, are not impacting their world as much as the other group.
Internal Friction, Too
Friction tied to payables can also be evident within a company, Clark added. Traditionally, there has been a lack of collaboration between procurement and finance. At the front end of a business, he noted, executives are sourcing supplier relationships, as well as setting up and negotiating the terms of pricing and payment time frames. Of course, though, there is the juggling of purchase orders and invoices going on within the back end of an organization.
The ideal setting is one where collaboration between procurement and finance occurs over the full life cycle of a supplier relationship, and where approvals and payments of transactions are routed and completed smoothly, and on time. Such intercompany communication demands a holistic approach, to surmount the fact that — as shown in the Payables Friction Index — only 46 percent of respondents consider electronic invoicing implementation as a top innovation interest.
Clark added that, in his view, “it’s very encouraging” that more firms have been putting together models that address every step of the life cycle. “The whole payments ecosystem will be healthier from that,” he said.